United States v. Moore

• Decision Date: 19 October 1966
• Docket Number: No. 22371.,22371.
• Citation: 366 F.2d 243
• Parties: UNITED STATES of America, Appellant, v. Harry MOORE, Trustee of the Estate of Billie Sol Estes, Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

366 F.2d 243 (1966)

UNITED STATES of America, Appellant, v. Harry MOORE, Trustee of the Estate of Billie Sol Estes, Bankrupt, Appellee.

No. 22371.

United States Court of Appeals Fifth Circuit.

September 21, 1966.

Rehearing Denied October 19, 1966.

Lawrence R. Schneider, Alan S. Rosenthal, Attys., Dept. of Justice Washington, D. C., for appellant.

Allan L. Poage, El Paso, Tex., Thad Grundy, Houston, Tex., for appellee.

Before BELL and THORNBERRY, Circuit Judges, and FISHER, District Judge.

FISHER, District Judge:

The District Court for the Western District of Texas affirmed the decision of the referee in bankruptcy, granting certain motions for partial summary judgment filed by the trustee of the estates of the Estes brothers, Billie Sol Estes and Bobby Frank Estes, bankrupts.

The claims of the government alleged, in part, that the bankrupts were indebted to the United States for certain penalties which had been assessed against them by the Commodity Credit Corporation pursuant to Section 346(a) of the Agricultural Adjustment Act, as amended, 7 U.S.C. § 1346(a),¹ resulting from the production of cotton in excess of the allotments applicable to their farms.

Trustee for bankrupts' estates filed a motion with the bankruptcy referee for partial summary judgment against the government on the allegation that the cotton marketing quota penalties constituted "penalties" within the meaning of Section 57(j) of the Bankruptcy Act, 11 U.S.C. § 93(j),² and, therefore, could not be allowed in the bankruptcy proceedings. The referee granted the trustee's motion, and the district court affirmed on a certificate of review.

The government filed this appeal seeking a reversal of the district court judgment because of alleged error in granting the trustee's partial motion for summary judgment determining that cotton marketing quota penalties which had been assessed against the bankrupts for producing cotton in excess of their allotments constituted "penalties" within the meaning of Section 57(j) of the Bankruptcy Act, and that, therefore, the claims based thereon were neither allowable nor dischargeable in bankruptcy.

Further, the government seeks reversal on a second point: that even if the cotton marketing quota penalties are held to be "penalties" within the meaning of Section 57(j), the government's claims are allowable in bankruptcy to the "amount of the pecuniary loss sustained by the act, transaction or proceedings out of which the penalty or forfeiture arose." Thus, it is argued, the referee and the trial court erred in not permitting proof of actual "pecuniary" loss sustained by the government, and in granting the trustee's motion for summary judgment.

The government construes Section 57 (j) to be applicable only if the penalty imposed against the bankrupt is of a punitive nature. Simonson v. Granquist, 369 U.S. 38, 42, 82 S.Ct. 537, 7 L.Ed.2d 557 (1962) is cited as authority for this proposition.

The position of the government is that cotton marketing quota penalties mentioned in Section 346(a) of the Agricultural Adjustment Act, the marketing quota penalty involved in this case, are not punitive in nature but are actually a civil debt and therefore should not be disallowed under Section 57(j) of the Bankruptcy Act, citing the cases of Usher v. United States, 4th Cir. 1944, 146 F.2d 369; Miller v. United States, 6th Cir. 1957, 242 F.2d 392; United States v. Stangland, 7th Cir. 1957, 242 F.2d 843; United States v. Biehunko, 55 F. Supp. 706 (S.D.Tex.1944).

In support of its argument that said penalties are actually civil debts and not punitive measures, the government compares said penalties with customs duties, saying that the imposition of customs duties is designed to curtail importation, and that the assessments on excess cotton production are designed to discourage such production by making it less profitable.

Also, the government points to the fact that the cotton marketing quota assessments have been held by the Internal Revenue Service to be "deductible from gross income * * * as ordinary and necessary expenses incurred in carrying on * * * the business of farming;" I.T. 3530, 1942- 1 Cum.Bull. 43, whereas penalties paid for violation of statutes are not deductible for income tax purposes. Commissioner of Internal Revenue v. Longhorn Portland Cement Co., 5th Cir. 1945, 148 F.2d 276, 277, certiorari denied, 326 U.S. 728, 66 S.Ct. 33, 90 L.Ed. 432, 1945; Burroughs Building Material Co. v. Commissioner of Internal Revenue, 2nd Cir. 1931, 47 F.2d 178, 179; Great Northern Ry. Co. v. Commissioner of Internal Revenue, 8th Cir. 1930, 40 F.2d 372, 373, certiorari denied, Great Northern R. Co. v. Burnet, 282 U.S. 855, 51 S.Ct. 31, 75 L.Ed. 757, 1930.

Further, the government says that Congress never viewed cotton marketing quota assessments as being penal in nature. The Agricultural Adjustment Act of 1964, P.L. 88-297, 78 Stat. 173, which amended the Agricultural Adjustment Act of 1938 by adding Section 349 thereto, provides for damages — should a farmer exceed the "export market acreage" — in an amount which the Secretary determines * * * will approximate the amount payable on excess cotton under Section 346(a) of the Agricultural Adjustment Act, as amended. Thus, by analogy the debt for overproduction of cotton under said provision Section 346 (a) is said to be in the nature of liquidated damages, and the courts have held that claims for liquidated damages do not fall within the prohibition of Section 57(j) of the Bankruptcy Act. United States v. Walkof, 2nd Cir. 1944, 144 F.2d 75, 154 A.L.R. 1250; United States v. Paddock, 5th Cir. 1950, 180 F.2d 121.

Further, the government urges that the referee and the district court cannot rely upon Rodgers v. United States, 1947, 332 U.S. 371, 68 S.Ct. 5, 92 L.Ed. 3, for the proposition that the penalty paid for overproduction of cotton is analogous to the criminal law since Section 57(j) of the Bankruptcy Act was not involved in that case, and, further, since that court decision was overruled by legislative action amending the allotment provisions allowing interest on cotton marketing quota penalties.

The government contends that the amendment³ to provide specifically for the payment of interest on cotton marketing quota penalties indicated that Congress considered such penalties to be a civil debt rather than punitive in nature.

The government concludes that even though the district court erred in upholding the referee's determination that the cotton marketing quota penalties are "penalties" within the meaning of Section 57(j), the government claims for penalties are allowable in bankruptcy, to the amount of the "pecuniary" loss sustained by the act, transaction or proceeding out of which the penalty or forfeiture arose.

The contentions concerning the applicability of Section 57(j) have been carefully considered. We hold that, singly or collectively, they are without merit. Whether the cotton marketing quota penalty is labeled punitive or civil is immaterial in view of the reasoning of the Supreme Court in Simonson v. Granquist, supra, where the court rejected the contention of the government that federal tax penalties secured by liens were recoverable from the estate of a bankrupt. The court said:

"We think, however, that the language of § 57j is itself a more dependable guide to its meaning * *. Unquestionably that language is broad enough to bar all penalties, whether secured by lien or not, and we think the section was designed to do precisely that. For it plainly manifests a congressional purpose to bar all claims of any kind against a bankrupt except those based on a `pecuniary\' loss. So understood, this section, which has been a part of the Bankruptcy Act since its enactment in 1898, is in keeping with the broad aim of the Act to provide for the conservation of the estates of insolvents to the end that there may be as equitable a distribution of assets as is consistent with the type of claims involved. Moreover, the prohibition of all tax penalties in bankruptcy is wholly consistent with the policy of the penalty provisions themselves. Tax

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